A new corporate offence making businesses criminally liable for failing to prevent fraud came into force on Monday in what legal and compliance experts are describing as one of the most significant shifts in UK corporate governance in a decade.
The measure, introduced under the Economic Crime and Corporate Transparency Act 2023, will expose large companies to prosecution if they profit from fraudulent conduct carried out by employees, even if senior managers were unaware of the wrongdoing.
It applies to organisations with more than 250 staff, annual turnover above £36 million and assets exceeding £18 million.
The scope of the offence is broad, covering dishonest sales practices, market manipulation and the concealment of information from consumers or investors.
CLOSING LOOPHOLES
Ministers say it is designed to close loopholes that have allowed businesses to avoid accountability, while forcing directors to embed anti-fraud safeguards into day-to-day operations.
Fraser Mitchell (main picture, inset), Chief Product officer at SmartSearch, a digital compliance provider, says the law marked a “wake-up call” for firms that have relied on paper policies while “turning a blind eye” to malpractice.
And he adds: “The introduction of the failure to prevent fraud offence marks a significant step forward in holding businesses accountable and strengthening the UK’s anti-fraud framework.
“Policies alone are not enough – firms must ensure they are actively embedded, monitored and enforced across every level of the business.”
CRIMINAL LIABILITY
Mitchell warns that senior leaders could face criminal liability, reputational damage and financial penalties if they fail to act.
He says: “There really is no excuse for not putting robust fraud prevention in place.
“The technology exists to help companies identify risks, monitor behaviour and demonstrate compliance. Those that act now will not only comply with the law but also protect their customers, shareholders and long-term trust in their business.”
The government hopes the reforms will foster a stronger anti-fraud culture across corporate Britain, amid rising concern over the scale of financial crime, which is estimated to cost the economy more than £100 billion a year.
